PANL: Samsung Jury Defeat Negative, Says Canaccord; Goldman Defends

By Tiernan Ray

Shares of organic light-emitting diode (OLED) technology maker Universal Display (PANL) are down $3.47, or 8%, at $39.26, and were down over 11% at one point, following a verdict in Apple’s (AAPL) favor on Friday in a patent suit against Samsung Electronics (005930KS), a customer of Universal’s.

The fear is that potential injunctions will hit sales of Samsung smartphones and tablets, hurting royalties for Universal derived from the “AMOLED”-based screens used in the devices.

Canaccord Genuity‘s Jonathan Dorsheimer, who maintains a Hold rating on PANL, and a $30 price target, wrote this morning that the verdict is “clearly negative” for the company, though the exact outcome’s not clear:

We believe this verdict could lead to Samsung also delaying near-termproduct launches as it attempts to design around Apple’s patents. We also believe other Android OEMs, such as HTC, Sony, and LG, will review this patent verdict and potentially alter and delay planned Android smartphones and tablets. • As Samsung specifically and to a lesser extent other Android devices represent basically all of UDC’s commercial revenues, this ruling is clearly negative for UDC. An injunction or product delays would affect UDC’s results; however, absent any further information until the hearing later this month and the trickle out of product announcements, the exact effect is difficult to quantify. The verdict certainly puts 2012 guidance at risk, and may push the entire OLED opportunity out a year or more as products are redesigned and brands rebuild. Any push-out of the opportunity is material in our opinion, as the bulk of UDC’s value depends on its ability to monetize OLED adoption pre-2018 when its core patents begin to expire.

National Securities’s Darice Liu, however, in a note to clients reiterates a Buy rating on PANL, writing that the effect over the longer term should be minimal:

It may look negative for Universal Display. Samsung is the largest consumer of OLED screens and this decision may impact near-term sell through of its legacy products. Approximately 15%-20% of Samsung’s smartphones are sold in the U.S. One thing to note though is that the new Samsung Galaxy 3 was not included in the litigation. Additionally, Samsung’s tablet products currently do not use OLED. Longer-term, we expect Samsung to redesign its software to comply with the findings. We do not believe Samsung will allow this finding to impede further product innovation, if anything, it will likely drive Samsung to be more aggressive in its investments.

Update: In an update to the note, Liu states that for touch-feedback technology maker Immersion (IMMR), “For Immersion, this may be a positive for the company. The Apple-Samsung verdict sends a strong message about patent infringement.”

Liu maintains a Neutral rating on IMMR.

Immersion stock is up 34 cents, or 6.2%, at $5.86.

Update: Goldman Sachs‘s Brian Lee similarly came to PANL’s rescue today, reiterating a Buy rating and a $61 price target, writing that the effect should be limited because newer, high-volume devices probably wouldn’t be touched in an injunction:

We believe newer, high-volume smartphones such as the Galaxy S III – which are not named in the case – are less exposed to design patent issues (e.g., color, display translucence) based on our channel checks. Our Korea Tech research team estimates that the devices named in the infringement case represent less than 5% of SEC’s smartphone shipments in 1H12. Fundamentally, we believe any impact to PANL will be limited as the bulk of2H12 growth and earnings should be driven by new products that are notpart of the litigation (Galaxy S III and Note 2) in addition to volume growth innew materials (green emitters and hosts).

Regarding the 15-20% figure from Darice. Could you help square that with this BI from Business Insider?http://www.businessinsider.com/chart-of-the-day-samsungs-us-smartphone-sales-are-shockingly-small-2012-8
I just don't see how the USA could be 15-20% given the BI work at Business Insider. Who is correct?
PS. UDC is a patent company too, so if in general the decision was good for patent companies it helps UDC with its OLED Patent portfolio. Push/Pull impact then. Also in question is whether the oled technology diffusion train brings Apple aboard possibly through SMD production expansion or LG/Sharp IZGO. In the long run this may have little to do with Apple vs SMD if Apple adopts OLED; Apple has already begun filing OLED based product design patents.

AUGUST 27, 2012 2:23 P.M.

thanks again wrote:

I was looking forward to your coverage on PANL today... and it appeared. Thanks again for staying on the story and interviewing a few of the analysts known for different opinions. Thanks for keeping the balanced coverage. :)

AUGUST 27, 2012 3:18 P.M.

Ed wrote:

What a scam. Should be at 700. Apple still
gets no respect and gets manipulated every
time. If this was Amazon or Google, they would
be up 5% no sweat.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.